The Perfect Storm has Arrived
Incitec Pivot (ASX: IPL) has just written down the value of its fertiliser plant in Queensland by $106 million due to higher gas prices – the perfect storm in Australia’s LNG market has arrived.
As we’ve forewarned here, here and here, Australians are expected to pay a lot more for natural gas, despite our abundant resources, aggravated by the completion of multiple large export projects which were approved during the resource boom.
Energy-intensive manufacturing in Australia is now directly under threat (despite the benefits of a lower Australian dollar) and the flow-on effects are significant. Incitec Pivot is calling on the Government for assistance, not only for the 200 people directly employed by the plant, but for the thousands of downstream participants like farmers who rely on the fertiliser produced.
Incitec Pivot’s announcement should not be viewed as an isolated incident and must spurn greater collaboration between Government and Industry to fix the considerable inefficiencies in the domestic market.
Ben MacNevin is an Analyst with Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Chris
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Not just that, my own knowledge is that the plant produces a particular consumable for the mining industry, and with the downturn, prices for that have dropped because demand is not there.
Look at another related company, which last week, cut its dividend.
The plant HAS to produce a minimum amount of this (even at a loss) because stopping and starting is not viable. You might also want to check out how much it cost to build it (overruns) under the previous owner.